Study Depicting Unfavorable Business Climate in California Is Flawed
In 2012, the Institute for Legal Reform (ILR) released a study on the lawsuit climate for businesses. The ILR, which is a tort reform advocacy group, interviewed people who they described as “business executives.” Based on the information provided by those interviewed, the ILR determined that California, Washington and West Virginia were among the worst legal climates for businesses. California, in particular, was ranked 47 out of 50 states.
“Fortunately, the inaccuracy of this study ultimately received as much media attention as its detrimental depiction of the business climate in California,” explained personal injury lawyer James Ballidis.
Many media outlets subsequently began citing this report, indicating that the IRL study suggested corporations might take these unfavorable ratings into account when deciding where to locate their businesses. Among the media outlets that cited the studies were the Chicago Tribune, which warned “Legal Climate Clouds Business in Illinois”; the Sacramento Bee, which reported that “California Ranked 4th Worst in Business Legal Climate”; as well as numerous other major news publications that all cited the ILR data uncritically as fact.
Neither the study nor the reports based on it may rely on accurate data. In fact, Media Matters for America recently issued a warning that the mainstream media had missed significant flaws in the ILR.
According to Media Matters, the major problem with the study is that it surveys only lawyers and executives who work for huge corporations with annual revenues in excess of $100 million. The panel of people surveyed, therefore, is very limited and there is no reason to believe that the majority of businesses throughout California would have the same opinions and experiences as those with such high revenues.
In addition, Cornell law professor Theodore Eisenberg was quoted in The Huffington Post as indicating that the study was “substantively inaccurate and methodologically flawed.” There were four major problems outlined in the article, which was provocatively titled: “The Brazen U.S. Chamber of Commerce Campaign to Hurt the Economy.”
- First, the study painted an incorrect picture of state law and lacked even elementary levels of objectivity expected in social sciences. When the responses were objective and independently verified, respondents to the survey ignored legal rules and material.
- Second, the study violated the basic principles that evaluations of the legal system must be based on: input from parties on both sides of disputes. Asking only one side of the dispute—in this case, businesses and not plaintiffs or potential plaintiffs—led to biased results.
- Third, the study participants were provided monetary incentives and told of results from the prior year, skewing the sampling by creating preconceived ideas in the respondents about how to answer.
- Finally, the study failed to recognize changes made in the law that affected the rights of respondents.
Media Matters went on to list other experts who had also found problems with the study, including numerous newspaper articles and news services. Moreover, objections came not just from the Cornell law professor, but also from state Supreme Court justices who believed that it was inaccurate to take the responses of a few limited parties as an accurate reflection of the effectiveness and fairness of their courts. Further, Media Matters reports that the objections by experts and media outlets go back at least as far as 2004.
Such concerns about the ILR study should not be taken lightly. Businesses take a number of factors into account in deciding where to locate their corporations and branches, and the legal climate of a given location is one major factor they consider.
If businesses are deterred from coming to California or other unfavorably-ranked states as a result of inaccurate and unrepresentative polls like those conducted by the ILR, this could create significant disadvantages for states, including higher unemployment rates and reductions in corporate income taxes. This could pose major problems, especially for California, where local governments in many areas struggle with budget crisis and where unemployment in certain parts of the state remains stubbornly high.
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